Special Report: Legacy of a Loophole

A retire-rehire program for teachers was approved by lawmakers 10 years ago, but today more than half of all participants are non-educators, annual pension payouts are nearing $250 million and it’s being credited, at least partly, for leaving schools with less money to spend on active teachers.

By JEREMY ALFORD

IN JULY 2000, THE LOUISIANA LEGISLATURE gave public school teachers a pretty sweet deal. If they could go 12 months without benefits following their retirement date, they could be re-employed in another classroom job while receiving both a public salary and retirement benefits. That meant two checks. All in the name of recycling qualified educators.

Sponsored by former Rep. William Daniel of Baton Rouge, Act 114 was very specific and “limited to classroom teaching.” More importantly, it eliminated the ability of the Teachers’ Retirement System of Louisiana (TRSL) to offset or reduce the benefits of return-to-work employees.

Before the act was passed, TRSL had the authority to reduce the monthly benefit checks of rehired teachers by 50 percent or more for the length of their reemployment. The formula was based on years of service in the classroom and it allowed the system to offset any costs it might incur for the reentry. But with the passage of Act 114 in the spring of 2000, that administrative ability was eliminated at the urging of school boards and others.

It was unknown at the time exactly what kind of fiscal impact the move would have. And it wasn’t until the following May, when lawmakers were in the throes of their 2001 regular session, that the first set of performance numbers were released for the retire-rehire program. In the preceding 11 months, 625 teachers had retired with intentions of returning to their chalkboards.

That’s when hell broke loose. Or rather, that’s when lawmakers created The Loophole. It came courtesy of Act 1173, sponsored by former St. Tammany Parish Rep. Pete Schneider, then chairman of the House Retirement Committee. The Schneider law broadened the retire-rehire program to include “any member” of TRSL. Not just teachers.

Moreover, the Schneider law expanded the exemption from benefit reductions to “any member” — meaning any and all members who had achieved their retirement date were eligible for reemployment with a full salary and full benefits. While it might sound dramatic on paper, the 2001 debate before Schneider’s committee produced boosters who insisted the impact would be minimal.

James P. Hadley, Jr., who was TRSL’s executive director at the time, told lawmakers that the existing return-to-work provisions were “too confusing.” He claimed there was a real teacher shortage that was impacting counselors, librarians and other direct support personnel. He said there would be only 4,300 to 4,800 positions that could be filled using the new perimeters of the Schneider law.

Charles Hall, an actuary who is still employed with TRSL, wasn’t as cheery during the 2001 committee meeting. Hall said additional costs to the system could reach $11 million annually, which would have to be “translated and plowed into higher contribution rates.” When pushed by lawmakers for an exact figure, Hall forecasted an increase of as much as two-tenths of a percent each year. “It will increase employer contributions,” Hall said in 2001.

Daniel, a member of the House Retirement Committee at the time and the author of the 2000 law for teachers only, offered up his own predictions. “I’m not sure there would be any costs,” Daniel said. “It would take a really radical change in retirement patterns to have significant costs.”

Another nine years went by until, in 2010, lawmakers finally decided to take a closer look at the retire-rehire program. But by then, the damage had been done.

More than 7,500 retired-rehires were in the program, mostly in the K-12 bracket. The Schneider law had served as an incentive for any and all members to retire early and come back to work. In August alone, $20.7 million worth of benefits were disbursed to rehires in the program.

The challenge is somewhat unique to TRSL. Just compare its situation to the retire-rehire numbers produced by the Louisiana State Employees’ Retirement System (LASERS), which provides defined benefits to more than 150,000 members overall — just 10,000 fewer than TRSL.

By comparison, LASERS has managed to keep its retire-rehire program on a much smaller scale. Based on data it provided, LASERS is shelling out $1.6 million each month to 552 reemployed retirees.

As for the TRSL program, lawmakers adopted legislation last year sealing up the loophole. The non-educators were grandfathered, however, and remain in the program. Moreover, there is support for carving out new exemptions in the law.

As such, the legacy of this little-known loophole is far from being written.

THIS YEAR, THE OVERLOADED PROGRAM will dispense nearly $250 million in benefits from TRSL’s coffers to rehired retirees. From an actuarial standpoint, many of these public employees retired earlier than anticipated, lured into retirement by the prospect of significantly higher take-home pay. Money meant for retirees who stepped down as expected — and are now due their cash — is instead being channeled to these rehired-retirees in certain cases.

The most substantial costs related to the retire-rehire program, though, come from the change in offsetting or reducing benefits, state actuaries say. Had lawmakers allowed the system to continue the practice of reducing monthly benefit checks by 50 percent or more for return-to-work participants — an authority that was stripped by the Daniel and Schneider laws — it’s quite possible that the situation would be different.

But it’s not. At the close of the last fiscal year, TRSL officials said the program is costing the system roughly $120 million annually. To address the need, TRSL has been pulling funds from its own pension plan.

Since benefits are amortized over 30 years, the hit is slated annually for the next three decades or so. The simple math puts the overall impact at $3.6 billion, but TRSL officials contend that’s an unfair calculation since pension payments decrease toward the end of the amortization schedule. Nonetheless, it gives you some idea of the scope of this problem.

Rep. Hollis Downs (R – Ruston)

Rep. Hollis Downs of Ruston, another member of the House Retirement Committee, has suggested that TRSL may need to get a separate line of cash from the Appropriations Committee in coming years to begin dealing with the $120 million in annual costs. The Appropriations Committee has broad oversight and is responsible for crafting the initial version of the state’s annual budget.

Such a scenario would mean that the money would be pulled directly out of the state’s general budget. “We’re paying for these teacher shortages out of the pension plan instead out of appropriations or whatever other method,” said Hollis. “It’s not a good public policy.”

There are also the employer contribution rates, which TRSL member agencies pay on behalf of each employee they have in the system. In the 2000-2001 fiscal year, the employer contribution rate was 14.20 percent. By the 2010-2011 fiscal year, the employer contribution rate had reached 23.70 percent. These increasing contribution rates leave schools with less money to spend on salaries for active teachers.

“But a lot of that increase has to do with (unfunded accrued liability),” said Lisa Honoré, TRSL’s public information director. Known more commonly as the UAL, it represents the amount of debt the retirement system has. For example, 17.73 percent of next year’s employer contributions will go toward paying down TRSL’s UAL, which stands at $10.8 billion today. Ten years ago, the UAL percentage from employers was half of that tally, around 7 percent.

Aside from constraining schools, higher contribution rates are a burden on taxpayers. That’s because member agencies chiefly pay for contribution increases from their operating funds, which are in turn underwritten by taxpayer dollars. In fact, member agencies get their cash, at least initially, from the Appropriations Committee.

This is just one of the reasons why the unintended consequences of the retire-rehire program shouldn’t be ignored.

Based on a review of more than 350 pages of documents filed by member employers like universities, school boards, state agencies and technical colleges, there were still 5,708 TRSL retirees working and collecting two checks as of Jan. 1, 2011.

The documents released by the House of Representatives and TRSL through public records requests further reveal that the 2001 loophole allowed principals, secretaries, administrators and even a radio station employee to retire and be rehired with both salaries and pension payouts.

Schneider, who has been out of the Legislature for nearly a full term, said his original intent didn’t match up with the program’s outcome. “It was never the committee’s attempt to give everybody the opportunity to take advantage of the system,” he said. “I always deferred to (TRSL) and its actuaries. This is something they expressed support for.”

Honoré said TRSL officials told lawmakers on more than one occasion that the program would cost additional dollars. As for who should shoulder the blame — the program went seemingly unchecked for nearly a decade — Honoré said lawmakers were provided with annual data to review.

Hall, TRSL’s actuary who testified to lawmakers when the original loophole was created and then again last year when it was closed, has defined it as a “policy problem.” He told lawmakers during the most recent debate that reports are conducted annually and every five years. Yet the trend was still difficult to catch. “You don’t see it. It won’t slap you in the face,” Hall said.

Maureen H. Westgard, TRSL’s current director, was offered an opportunity to comment on this story, but communicated instead through Honoré and the release of public records. Westgard took over TRSL in 2005, which was also about the time Schneider was making his exit from public service due to term limits. The fact that these transitions took place in the middle of the retire-rehire program’s life is notable and may be another contributing factor to what went wrong and why the policy went overlooked.

THE TEACHERS’ SYSTEM TOOK A NEUTRAL stance last year when Rep. Page Cortez of Lafayette passed Act 921 to close the retire-rehire loophole. In a nutshell, Cortez’s law restricts the retire-rehire option to classroom teachers only — and administrators and superintendents can only allow it when the position they’re filling has been properly advertised and they’ve certified a shortage of candidates for the position.

Rep. Page Cortez (R - Lafayette)

As of May of this year, only 43 retired teachers have been hired, proof enough that deluge of rehired retirees has at least slowed to a trickle. “Why aren’t they declaring more shortages? Because they don’t have any shortages,” Cortez said. “We have somewhere in the neighborhood of 2.800 graduates from colleges of education around the state. There’s a disconnect in hiring practices, I think. Obviously, we’re graduating educators. Where are they getting hired?”

He added that many superintendents and agency heads are hesitant to declare official shortages for positions. It’s a risky scenario. For example, what happens if retiree is rehired to teach science, for which a shortage has been declared, and a qualified science teacher suddenly emerges? “They could face criminal penalties,” Cortez said.

Cortez said the program has been “mismanaged” and there’s evidence of “abuse” throughout the state. Hundreds of pages of documents obtained for this story spell out as much. Among K-12 institutions, which host the highest concentration of rehired retirees, the Jefferson Parish School System has the most, about 570, followed by Calcasieu Parish with 442 and East Baton Rouge with 399.

Under the higher education column, Louisiana State University is home to 81 return-to-work employees who are collecting at least two public checks. The University of Louisiana at Lafayette posted 62 such employees and Southern University 41.

But rehired retirees aren’t just confined to schools. The state Department of Public Safety and Corrections has seen five employees use the loophole and the Office of Juvenile Justice has four. These are the kinds of positions that TRSL refers to as “other.”

At the end of the day, all this data begs a question: Who took a harder hit — teachers or the system? A message seeking comment from Steve Monaghan, president of the Louisiana Federation of Teachers, was not returned, but other boosters were willing to talk.

Joyce Haynes, president of the Louisiana Association of Educators, said the entire concept, tracking back 10 years, was about keeping certified teachers in the classroom. “A lot of people in the system immediately saw it as an incentive. Before long, you had central office staffers jumping in and people with political connections,” she said. “There was just so much abuse.”

On the other hand, Haynes said retired teachers still need an easier way back into the classroom and Cortez’s law — the loophole closer — may have buttoned it up too tight. “It’s really not even worth the trouble for some people to try and get rehired now,” she said. “They keep taking things away from teachers, even if it’s not their fault. It’s clear the system is heading in a new direction now.”

As for how or when the situation might be addressed again, Haynes said she expects retire-rehire to become a perennial topic for lawmakers now that more information is beginning to surface. “I think this is going to be an issue for the Legislature for the foreseeable future,” she said.

“THE HUMAN PERSPECTIVE.” That’s what’s needed when reviewing the retire-rehire saga, according to Sen. Butch Gautreaux of Morgan City, who’s serving out his final year as chairman of the Senate Retirement Committee.

“What’s good for the pension doesn’t always happen,” he said. “You never know why certain decisions are made. An administrator might feel like they want to help an employee because he’s a good guy or maybe someone needs money all of sudden for an emergency.”

While lawmakers have only just recently started hearing about problems in the program, Gautreaux said few are actually aware of the extent non-educators have jumped into the fray over the years. “I think we need to help people find ways to get back into the workforce if that’s what they want to do, but that doesn’t make everything that has happened right,” he said. “There have to be rules and rules have to be followed.”

The list of program participants goes all the way to the top, as in the Louisiana Department of Education, which had 19 retire-rehire employees on staff through “professional service” contracts. The top three contact amounts — as opposed to salaried or hourly workers — were held by Sandra McClary, $49,980; Michele Crosby, $39,000; and Jane Mangum, $19,500.

At the Board of Regents, there are four rehired retirees on the rolls, including Sharon Southall, senior policy advisor, $10,416 in benefits per month; Harold Bouttee, assistant commissioner, $7,261 per month; Dawn Muscarello, special initiatives coordinator, $70 per hour; and part-time librarian Mary Connell, $15.72 per hour.

There are also curious examples throughout the system, like Sam Nader, assistant director of LSU Football, $10,125 per month; George Caballero, banner conversion specialist at Nicholls State University, $5,416 per month; and Andrew Isca, UL-Monroe public radio, $342 per year — just to name a few.

When all of these folks exit the retire-rehire program — meaning when they retire for the second time — they’ll get a nice parting gift in the form of cash. Once in the program, participants are expected to continue making their contributions to TRSL, along with those from their employers. Upon leaving the system, though, teachers are reimbursed for their contributions; those ponied up by the employers stay in the bank.

Rep. Kevin Pearson (R - Slidell)

Rep. Kevin Pearson of Slidell, chairman of the House Retirement Committee, said there’s still a great deal of work to do in investigating how the retire-rehire program progresses. “I have some concerns,” said Pearson. “Did you know these rehires get tenure when come back? They don’t start over at all.” When an educator reaches tenure, it means their position cannot be terminated without just cause.

Rep. Hollis Downs, who broached the idea of pulling the system’s $120 million shortfall out of the state budget, suggested that the only way the state will be able to effectively address the problem in the future is to eliminate any and all opportunities for a salary and a check. But that’s unlikely to happen.

On the horizon, you can certainly expect lawmakers to try and widen the closed loophole. During this year’s regular session, exemptions were filed for substitute teachers, certain adjunct professors and adult education courses. All three proposals won favor with the Legislature and Gov. Bobby Jindal, but failed to be enacted due to a massive technical glitch. (That is, due to a last-minute amendment, they were all tied to the passage of another retirement bill that was subsequently vetoed.)

Lee Barrios, a retired teacher from Abita Springs with a master’s degree, lobbied lawmakers to approve the changes this spring. Like Gautreaux, she tried to communicate a human perspective via her own story. “The law has totally prevented me, a highly experienced teacher, from working as a substitute or in an adjunct professor position,” said Barrios, who recently qualified to run for election in the Board of Elementary and Secondary Education’s 1st District this fall.

It’s doubtful that the loophole was closed to keep people like Barrios, who earned a reputation as a public school activist in the wake of Hurricane Katrina, from enriching young minds. In fact, it was Cortez who sponsored this year’s bill to make it easier on substitutes. And it was Gautreaux’s retirement bill that torpedoed the exemptions offered by Cortez and his House colleagues. That’s politics.

Then again, retirement policy is difficult enough without all the politics. Pearson said it already makes for a tough go, having to balance the ever-important needs of teachers against the not-so-cheery fiscal conditions of the state these past few years.

For the time being, take comfort in knowing that the loophole has been closed and lawmakers are learning more about the program and its aftereffects. What’s important is what happens next. “I’m not in love with any of it,” Person said with a quiet chuckle. “So for now, we have to live with it.”